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Market regulator Securities and Exchange Board of India (Sebi) on Tuesday slapped a Rs 5 crore penalty on Indian Clearing Corporation (ICCL) for non-compliance of certain norms related to network and cyber audits.Sebi had conducted an inspection of books of accounts and other records of Indian Clearing Corporation for the period between December 1, 2022 and July 31, 2023 to ascertain if it has complied with the provisions of Sebi regulations and circulars.The BSE subsidiary which was established in 2007, was found in violation for non-maintenance of correct and up-to-date inventory and absence of software assets information in inventory. The company did not comply with norms that mandate Market Infrastructure Institutions (MIIs) to identify critical assets based on their sensitivity and criticality for business operations, services and data management and maintain up-to-date inventory of its hardware and systems, software and information assets.Also Read: Up to 28% fall in one month. Will US stagflation mean more bad news for Indian IT stocks?The norms are prescribed in the July 2015 Sebi circular on Cyber Security for MIIs.The regulator also found ICCL to have failed to close out the observations in the bi-annual cyber audit in a time bound manner."From the Cyber Audit Report submitted during inspection, it was observed that the cyber audit is being conducted bi-annually as per the SEBI circular; however, the observations made in the said audit report are not closed in a time-bound manner. For instance, as per cyber audit report for period October 2022 — March 2023, an observation w.r.t having an updated IT asset inventory i.e. ‘The asset register lacks completeness and is not up-to-date’ was not closed within the deadline (October 31, 2023) given by the auditor," the 37-page order said.In its defense, ICCL said that Sebi had failed to appreciate the auditor’s findings on the Closure Reports of November 6, 2023.The order also noted ICCL's failure to obtain comments from the management and board of directors before submitting the Network Audit report to Sebi.ICCL submitted that the report did not warrant any comments from the board which was rejected by Sebi.

In a bid to address volatility in broader markets as a result of spill-over from the derivative markets, market regulator Securities and Exchange Board of India (Sebi) on Monday released a consultation paper proposing a slew of measures in the futures & options (F&O) segment to enhance ease of trading and risk management. The deadline to send the feedback ends on March 17, 2025. Here are 10 things Sebi's latest consultation paper titled 'Enhancing Trading Convenience and Strengthening Risk Monitoring in Equity Derivatives' proposes to do:1) Computation of OISebi is mulling changing the methodology for the calculation of open interest (OI) from the current notional terms to 'Future Equivalent' or Delta-based approach.Open Interest (OI) in derivatives markets represent the total outstanding position held by all participants. Currently, OI is calculated by adding open interest of futures and options (in notional terms) for each investor.The objective behind moving to a Future Equivalent (FutEq) or Delta-based OI approach is to address the limitations of notional-based OI, particularly its lack of meaningful aggregation across futures and options. A purely notional approach is susceptible to manipulation like artificially pushing a stock into the ban period or obscuring the true risk exposure of certain positions.Meanwhile, the Delta-based OI computation approach will allow for combining the OI from futures (where Delta = 1 times the notional for long futures) and from options (where Delta ranges from –1 to +1 times the notional) to reflect the overall price sensitivity (FutEq OI) in the derivatives market for a given underlying.Sebi is of the view that this methodology could provide a more accurate snapshot of the exposure at a particular time and aligns more closely with the cash market activity in terms of trading volumes and deliveries.2) Reducing Artificial Ban PeriodsThe consultation paper proposes to reduce the artificial ban period for single stock futures. Transitioning to Delta-based OI could reduce this possibility by counting only the effective exposure of these out-of-money positions at a point in time.A stock is placed in the ban period when combined OI reaches 95% of the Market Wide Position Limit (MWPL). Under a notional approach, participants could potentially take large notional positions in options with minimal Delta risk at a point in time (e.g., deep out-of-the-money options) to push the combined OI close to the MWPL and trigger a ban.After back testing for July 1, 2024 to September 30, 2024, Sebi found that under the current MWPL rules, there were 366 separate instances of stocks entering the ban period. Under the proposed formulation, these instances will drop to 27, which could be a 90% reduction. This approach would reduce artificial pushes into the ban period and also make such manipulation more difficult.Also Read: Up to 28% fall in one month. Will US stagflation mean more bad news for Indian IT stocks?3) Calibration of MWPLSebi has proposed that the MWPL for single stocks be set as the lower of 15% of free-float market capitalisation or 60 times the Average Daily Delivery Value, (ADDV), in the cash market across exchanges. This metric will be recalculated every three months based on the rolling ADDV for the preceding three-month period.There is a proposal for CCs to perform intraday monitoring at least four random times during the trading session to safeguard market integrity and limit settlement risk from intraday spikes in FutEq OI.4) Mitigating potential manipulationTying the MWPL to cash market delivery volumes will reduce potential manipulation and better align derivatives risk with the underlying cash market liquidity.5) MWPL for index derivativesSebi will separately and subsequently explore the need for an MWPL for index derivatives, in consultation with market participants, to ensure market integrity and prevent excessive volatility. Under current norms, the index derivatives are cash-settled and presently do not have an MWPL.Also Read: PSU bank stocks crack up to 34% in the past one year. Is it time to exit?6) Reducing FutEq OIDuring the ban period, any new trade will be permitted only if it reduces the participant’s starting FutEq OI for that day. For example, a holder of a long futures position could buy put options or sell call options to reduce total Delta exposure.7) Broker System CheckA mechanism would be built into brokers’ trading software to ensure compliance with these rules, i.e., to confirm that any new trade during the ban period decreases the participant’s net Delta exposure in that scrip.8) Computation of exposure limits for Mutual Funds and AIFs in derivativesFor futures exposure, no change in how futures exposure is computed for single stocks and indices is proposed, since notional values for long futures already align with their FutEq (Delta = 1 times notional). Both long and short options to be measured on a FutEq (Delta) basis, capturing their real price sensitivity at a point in time rather than just premium outlay.9) Pre-Open and Post-Closing sessions for the derivatives marketIt is proposed to extend pre-open and post-closing sessions to current-month futures on both single stocks and indices, mirroring the modalities of the cash market’s pre-open and post-closing sessions.While pre-open and post-closing sessions already exist in the cash market, extending these to futures could improve alignment between the two segments and enhance price discovery.10) Eligibility criteria for derivatives on non-benchmark indicesSebi has proposed additional criteria for introducing derivatives on non-benchmark indices. Under this a minimum of 14 constituents would be required. The top constituent’s weight will be less than or equal to 20%. Moreover, the combined weight of the top three constituents should be less than or equal to 45%. All other constituents’ individual weights must be lower than those of the higher-weighted constituents.